The name convention. In Forex,
the name of a "symbol" is composed of two parts - one for first currency, and
another for the second currency. For example, the symbol usdjpy stands for US
dollars (usd) to Japanese yen (jpy).
As with stocks, you can apply tools of the technical analysis to
Forex charts. Trader's indexes can
be optimized for Forex "symbols",
allowing you to find winning strategy.
Example Forex transaction
Assume you have a trading account of $25,000 and you are trading with a 1%
margin requirement. The current quote for EUR/USD is 1.3225/28 and you place a
market order to buy 1 lot of 100,000 Euros at 1.3228, expecting the euro to rise
against the dollar. At the same time you place a stop-loss order at 1.3178
representing a maximum loss of 2% of your account equity if the trade goes
against you, 50 pips below your order price, and a limit order at 1.3378, 150
pips above your order price. For this trade, you are risking 50 pips to gain 150
pips, giving you a risk/reward ratio of 1 part risk to 3 parts reward. This
means that you only need to be right one third of the time to remain profitable.
